Robinhood’s free-trading ethos turned the online brokerage industry on its head.
Established players were forced to rewrite their business models by abolishing commissions. The extreme disruption even prompted the blockbuster merger of industry leaders Charles Schwab (SCHW) and TD Ameritrade (AMTD).
Robinhood, the zero-commission online broker that recently surpassed 10 million users, is celebrating the rapid change it helped usher in.
“Robinhood pioneered commission-free investing in stocks,” Vlad Tenev, Robinhood’s co-CEO, told CNN Business. “We can be really proud of not just creating a world where our own customers don’t pay commissions, but customers of other brokerages have benefited as well.”
Robinhood launched six years ago with a no-commission promise and a desire to focus on millennials. It’s now viewed as a potential candidate to go public in 2020.
The startup’s impact was on full display this fall. In the span of just days, nearly every major online brokerage company eliminated commissions for buying and selling stocks. Shares of Schwab, E*Trade Financial (ETFC), Interactive Brokers (IBKR) and TD Ameritrade all plunged on the news.
“We celebrate the progress, certainly,” Tenev said.
In many ways, it was a validation of the strategy Robinhood adopted from day one.
“It just didn’t make sense,” Tenev said of the trading commissions charged to buy and sell stocks. “These were purely electronic transactions.”
After its rivals embraced zero commissions, Robinhood released an ad with the tagline: Change Doesn’t Happen Overnight Until it Does.
Yet the rapid adoption of free trading wipes out the big differentiator that made Robinhood stand out from its rivals. The startup will face tougher competition going forward. Retail investors now have a bevy of choices for free trading.
“Our work is just in the beginning stages,” Tenev said.
Buying a piece of Amazon for just $1
That’s why Robinhood announced a series of new features on Thursday, including the launch of fractional share trading. That feature will allow investors to invest in stocks and ETFs with as little as $1 – regardless of the price tag.
Some young investors may balk at cost of even buying a single share of Amazon (AMZN), Berkshire Hathaway (BRKA) and Google owner Alphabet (GOOGL) – each of which are priced at north of $1,000. Even Apple (AAPL) stock is priced at nearly $300.